You spotted your future wheels. The price tag is just right for the deposit that you have saved up, but there is only one issue. How do you nail the application process the first time around to avoid having it rejected too many times which can affect your credit report? Here are five mistakes to avoid when applying for a car loan.
1. Not checking your credit score
Your credit score plays an important part in whether any lender will give you a thumbs up to your car loan application. Even if you are able to find a lender that offers bad credit car loans, the first place they are likely to check if you qualify for the loan is your credit score. Your score can also be used to help lenders determine whether they should lend you money and how much can they lend you. It can sometimes impact what interest rate that you will get. A good credit score, which is between 622-1200, can improve your chances of being approved.
2. Not checking your credit report
Your credit report is an important file that shows lenders how many credit cards and loans you have and how you have managed them. If you have defaulted on any payments, gotten into arrears with a loan or were declared bankrupt it will reflect on your credit report. Before applying for a car loan, it is vital to check your credit report, which you can get access to for free, for any errors or arrears that need fixing to improve your chances.
3. Not checking the loan criteria
Whether this is your first car loan application or your third, check the loan criteria. Keep in mind that not all loans are not the same and lenders have different criteria. This is where comparing various loans can come in handy by checking which criteria is best suited to your needs. Rushing the process can only leave you with the disappointment of having your application rejected.
4. Not checking if you can afford the loan
Before you sign your name on the dotted line on any papers it is critical to assess if you are able to afford the loan, because once you sign on the dotted line you take full responsibility of ensuring that you meet the monthly repayments. You can use a loan calculator to check the interest rate to see if you will be able to afford the loan. Checking the comparison rate, which is a percentage slightly higher than the interest rate, will give you more an accurate answer as this also accounts for the fees and charges that come with the loan.
5. Not considering other finance options
There is more than one way to finance your car, and knowing what options are available can help you find one that is more financially suitable for you. You could take out a loan with a bank, use house equity, approach a broker for a car loan, or get dealer finance. It is vital that you compare each option in terms of the fees and charges that come with it, or you could end up paying through your nose.